Forecast: Analysts Think GrainCorp Limited's (ASX:GNC) Business Prospects Have Improved Drastically
GrainCorp Limited (ASX:GNC) shareholders will have a reason to smile today, with the analysts making substantial upgrades to this year's forecasts. The analysts greatly increased their revenue estimates, suggesting a stark improvement in business fundamentals. Investors have been pretty optimistic on GrainCorp too, with the stock up 16% to AU$8.08 over the past week. It will be interesting to see if today's upgrade is enough to propel the stock even higher.
Following the latest upgrade, the current consensus, from the nine analysts covering GrainCorp, is for revenues of AU$7.7b in 2023, which would reflect an uncomfortable 9.6% reduction in GrainCorp's sales over the past 12 months. Statutory earnings per share are supposed to dive 25% to AU$1.13 in the same period. Before this latest update, the analysts had been forecasting revenues of AU$7.0b and earnings per share (EPS) of AU$0.94 in 2023. So we can see there's been a pretty clear increase in analyst sentiment in recent times, with both revenues and earnings per share receiving a decent lift in the latest estimates.
View our latest analysis for GrainCorp
Despite these upgrades, the analysts have not made any major changes to their price target of AU$8.86, suggesting that the higher estimates are not likely to have a long term impact on what the stock is worth. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. Currently, the most bullish analyst values GrainCorp at AU$10.00 per share, while the most bearish prices it at AU$7.20. This shows there is still some diversity in estimates, but analysts don't appear to be totally split on the stock as though it might be a success or failure situation.
Of course, another way to look at these forecasts is to place them into context against the industry itself. We would highlight that sales are expected to reverse, with a forecast 9.6% annualised revenue decline to the end of 2023. That is a notable change from historical growth of 17% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 3.5% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - GrainCorp is expected to lag the wider industry.
The Bottom Line
The biggest takeaway for us from these new estimates is that analysts upgraded their earnings per share estimates, with improved earnings power expected for this year. Pleasantly, analysts also upgraded their revenue estimates, and their forecasts suggest the business is expected to grow slower than the wider market. Some investors might be disappointed to see that the price target is unchanged, but we feel that improving fundamentals are usually a positive - assuming these forecasts are met! So GrainCorp could be a good candidate for more research.
Analysts are definitely bullish on GrainCorp, but no company is perfect. Indeed, you should know that there are several potential concerns to be aware of, including a weak balance sheet. You can learn more, and discover the 2 other flags we've identified, for free on our platform here.
We also provide an overview of the GrainCorp Board and CEO remuneration and length of tenure at the company, and whether insiders have been buying the stock, here.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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